IIS ASP not working

I tried to install IIS on a fresh windows install updated with windowsupdate an get the same result on 2 computers. it installs fine but there appears to be a directory security rightd issue.

I type in http://127.0.0.1 in IE, and I get prompted for a username & password. Since there should be no uisername an password i say ok to blank fields and nothing happens. I finally hit cancel and can see taht it wants to go the loalstart.asp, but errors out with:HTTP 401.2 - Unauthorized: Logon failed due to server configuration
Internet Information Services

I can preview non-asp pages fine.

I enable anonymous access in IIS and get
error '8002801c'
Error accessing the OLE registry.
/iisHelp/common/500-100.asp, line 17

I am running IIS 5 which came on my windows disk with MS .NET Framework 3.5 which came from windowsupdate. Do I need to install anything else to get ASP working???????